Requirements 1. What is the standard direct material cost for one blanket? 2. Wh

Question

Requirements

1.

What is the standard direct material cost for one blanket?

2.

What is the actual cost per yard of fabric purchased?

3.

Calculate the direct material price and quantity variances.

4.

What is the standard direct labor cost for one blanket?

5.

What is the actual direct labor cost per hour?

6.

Calculate the direct labor rate and efficiency variances.

7.

Analyze each variance and speculate as to what may have caused that variance.

8.

Look at all four variances together (the big picture). How might they all berelated? What variance is very likely to have caused the other variances?

Dazzle Fabrics manufactures a specialty monogrammed blanket. The following are the cost standards for this blanket:

Data Table

Direct materials (fabric). . . . . . . . 2.0 yards per blanket at $7.00 per yard

Direct labor. . . . . . . . . . . . . . . . . 0.5 direct labor hours per blanket at $19.00 per hour

Actual results from last month's production of 2,400 blankets are as follows

Data Table

Actual cost of 6,240 yards of direct material (fabric) purchased. . . . . .$40,560

Actual yards of direct material (fabric) used. . . . . . . . . . . . . . . . . .5,540

Actual wages for 1,350 direct labor hours worked. . . . . . . . . . . . .$24,840

1.

What is the standard direct material cost for one blanket?

2.

What is the actual cost per yard of fabric purchased?

3.

Calculate the direct material price and quantity variances.

4.

What is the standard direct labor cost for one blanket?

5.

What is the actual direct labor cost per hour?

6.

Calculate the direct labor rate and efficiency variances.

7.

Analyze each variance and speculate as to what may have caused that variance.

8.

Look at all four variances together (the big picture). How might they all berelated? What variance is very likely to have caused the other variances?

Explanation / Answer

1. What is the standard direct material cost for one blanket?

Standard direct material cost for one blanket = 2 yards * $7.00 per yard = $14

2. What is the actual cost per yard of fabric purchased?

Actual cost per yard of fabric purchased = $40560 / 6240 yards = $6.5

3. Calculate the direct material price and quantity variances.

Direct material price variance = Actual quantity used (standard price - Actual price) = 5540 (7 - 6.5) = 5540 (0.5) = 2770 (F)

Direct material quantity variance = Standard price (Standard quantity - Actual quantity) = 7 (2400*2 - 5540) = 7 (740) = 5180 (U)

4. What is the standard direct labor cost for one blanket?

Standard direct labour cost for one blanket = 0.5 Hour * $19 = $9.5

5. What is the actual direct labor cost per hour?

Actual direct labour cost per hour = $24840 / 1350 hours = $18.4

6. Calculate the direct labor rate and efficiency variances.

Direct labour rate variance = Actual hour (standard rate - Actual rate) = 1350 (19 - 18.4) = 1350 (0.6) = 810 (F)

Direct labour efficiency variance = Standard rate (Standard hour - Actual hour) = 19 (2400*0.5 - 1350) = 19(150) = 2850 (U)

7. Analyze each variance and speculate as to what may have caused that variance.

Direct material price variance 2750 (F) is favorable because actual price per unit is lower than the standard price per yard of fabrics

Direct material quantity variance 5180 (U) is unfavorable because actual material used is more than the standard material. There are so many reason for this but main reason is due to spoilage of material used during production.

Direct labour rate variance 810 (F) is favorable because actual rate per hour is lower than the standard rate per hour.

Direct labour efficiency variance 2850 (U) is unfavorable because actual labour hour used is more than standard labour hour because of inefficiency of labour.

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